All Insured depository institutions must seek the FDIC’s permission to employ an individual convicted of an offense involving the illegal manufacture, sale, distribution of, or trafficking in controlled substances, unless the offense meets the FDIC’s “de minimis” standard. Consequently, we believe that your bank would need to obtain written consent from the FDIC to continue employing an individual who is convicted of a misdemeanor offense for manufacturing and delivering a controlled substance.

The Federal Deposit Insurance Act prohibits any person who has been convicted of a criminal offense involving dishonesty, a breach of trust, or money laundering from “participat[ing] in the conduct of the affairs of an insured depository institution” without the prior written consent of the FDIC. An FDIC Statement of Policy extends this prohibition by providing that “[a]ll convictions . . . for offenses concerning the illegal manufacture, sale, distribution of, or trafficking in controlled substances shall require an application unless they fall within the provisions for de minimis offenses.”

An offense is considered “de minimis” if: (1) there is only one conviction of record for a covered offense, (2) the offense was punishable by imprisonment for a term of one year or less and/or a fine of $2,500 or less, (3) the conviction was entered at least five years prior to the date an application would otherwise be required, and (4) the offense did not involve an insured depository institution or insured credit union.

We do not believe your employee’s conviction of a misdemeanor drug offense would meet the FDIC’s de minimis criteria, since a recent conviction would not be at least five years old. As a result, we believe your bank would need to obtain approval from the FDIC if you wish to continue employing this individual after they are convicted of a misdemeanor offense for manufacturing and delivering an illegal controlled substance.

As to Illinois law, the Savings Bank Act provides that “no person who has been convicted of any criminal offense involving dishonesty or a breach of trust may . . . participate directly or indirectly in any manner in the affairs of a savings bank” without the prior written consent of Illinois Department of Financial and Professional Regulation (IDFPR). Further, it is Class 3 felony for anyone to knowingly permit a person convicted of such an offense to participate in the affairs of a savings bank. However, unlike the FDIC’s policy, this prohibition in the Savings Bank Act does not extend to convictions involving illegal controlled substances.  We spoke with an attorney from the IDFPR who confirmed that a misdemeanor conviction for manufacturing and distributing a controlled substance is not a crime of dishonesty or breach of trust that would necessitate requesting its permission to continue employing the individual. (This confirmation is consistent with a guidance issued by the IDFPR relating to a similar provision in the Illinois Banking Act.)

Accordingly, you will need to obtain the FDIC’s prior written consent for this person’s continued employment, although you will not need to obtain a similar approval from the IDFPR.

Lastly, we are not in possession of any sample documents reflecting an employee’s acknowledgment that their employment will be terminated if they violate their probation. We recommend consulting with your bank counsel regarding the preparation of such a document.

For resources related to our guidance, please see:

• Federal Deposit Insurance Act, 12 USC 1829 (“Except with the prior written consent of the Corporation (A) any person who has been convicted of any criminal offense involving dishonesty or a breach of trust or money laundering, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense, may not (i) become, or continue as, an institution-affiliated party with respect to any insured depository institution; (ii) own or control, directly or indirectly, any insured depository institution; or (iii) otherwise participate, directly or indirectly, in the conduct of the affairs of any insured depository institution; and (B) any insured depository institution may not permit any person referred to in subparagraph (A) to engage in any conduct or continue any relationship prohibited under such subparagraph.”)

• Federal Deposit Insurance Act, 12 USC 1813(u) (“The term ‘institution-affiliated party’ means (1) any director, officer, employee, or controlling stockholder (other than a bank holding company or savings and loan holding company) of, or agent for, an insured depository institution; (2) any other person who has filed or is required to file a change-in-control notice with the appropriate Federal banking agency under section 1817(j) of this title; (3) any shareholder (other than a bank holding company or savings and loan holding company), consultant, joint venture partner, and any other person as determined by the appropriate Federal banking agency (by regulation or case-by-case) who participates in the conduct of the affairs of an insured depository institution; and (4) any independent contractor (including any attorney, appraiser, or accountant) who knowingly or recklessly participates in (A) any violation of any law or regulation; (B) any breach of fiduciary duty; or (C) any unsafe or unsound practice, which caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect on, the insured depository institution.”)

• Statement of Policy for Section 19 of the Federal Deposit Insurance Act (July 19, 2018) (“‘Dishonesty’ means directly or indirectly to cheat or defraud; to cheat or defraud for monetary gain or its equivalent; or wrongfully to take property belonging to another in violation of any criminal statute. Dishonesty includes acts involving want of integrity, lack of probity, or a disposition to distort, cheat, or act deceitfully or fraudulently, and may include crimes which Federal, state or local laws define as dishonest. ‘Breach of trust’ means a wrongful act, use, misappropriation or omission with respect to any property or fund that has been committed to a person in a fiduciary or official capacity, or the misuse of one's official or fiduciary position to engage in a wrongful act, use, misappropriation or omission. Whether a crime involves dishonesty or breach of trust will be determined from the statutory elements of the crime itself. All convictions or program entries for offenses concerning the illegal manufacture, sale, distribution of, or trafficking in controlled substances shall require an application unless they fall within the provisions for de minimis offenses set out in (5) below.”)

• Statement of Policy for Section 19 of the Federal Deposit Insurance Act (July 19, 2018) (“Approval is automatically granted and an application will not be required where the covered offense is considered de minimis, because it meets all of the following criteria:

• There is only one conviction or program entry of record for a covered offense;

• The offense was punishable by imprisonment for a term of one year or less and/or a fine of $2,500 or less, and the individual served three (3) days or less of jail time. The FDIC considers jail time to include any significant restraint on an individual's freedom of movement which includes, as part of the restriction, confinement to a specific facility or building on a continuous basis where the person may leave temporarily only to perform specific functions or during specified times periods or both. The definition is not intended to include those on probation or parole who may be restricted to a particular jurisdiction, or who must report occasionally to an individual or to a specified location.

• The conviction or program was entered at least five years prior to the date an application would otherwise be required

• The offense did not involve an insured depository institution or insured credit union.”)